The FTSE 100’s recent market crash could prove to be a buying opportunity for many investors.
Certainly, there is scope for the index to fall further. After all, the coronavirus outbreak could get worse before it improves. However, for investors with a long-term time horizon, there may be scope for a recovery over the coming years.
Therefore, even if you have no savings at age 50, now could be an opportune moment to start planning for retirement.
Clearly, investing in FTSE 100 shares is likely to be a risky move in the short run. The index’s past performance suggests that it could fall further than it has done in recent weeks, with previous bear markets such as the financial crisis causing a 50%+ decline in the index’s price level. And with the number of coronavirus cases unfortunately set to rise over the coming weeks, investor sentiment could be highly changeable.
However, over the long run, the FTSE 100 appears to offer strong recovery potential. It has a solid track record of producing improving performances following its downturns. In fact, no bear market or bull market has ever lasted in perpetuity. Therefore, there is likely to be a high chance of the index returning to its previous record highs over the coming years.
For most people, this presents a buying opportunity. For example, if you are currently 50 years old, you are likely to have at least 10 years until you retire. This is likely to provide you with sufficient time for the FTSE 100 to successfully recover from its present lows. And through buying undervalued shares now, you could benefit from their prices including a wide margin of safety. This may ultimately lead to higher returns in the long run, as well as lower overall risks.
While you may not require a passive income today, buying dividend shares could prove to be a shrewd move. They may become increasingly popular among investors over the next few years as low interest rates push income investors away from cash and towards equities.
Furthermore, a large proportion of the FTSE 100’s past total returns have been derived from the reinvestment of dividends. Therefore, with the FTSE 100 currently having a dividend yield of around 6%, and many of its members offering even higher income returns, it may be possible to generate strong total returns from buying a range of income stocks and holding them.
Clearly, there could be more difficult times ahead for all FTSE 100 companies. But through buying a diverse selection of businesses that have strong balance sheets, you could improve your return prospects. Over time, this may increase your chances of enjoying a passive income in retirement – even from a standing start at age 50.
Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.